Wednesday, July 05, 2017

Could a tax on vehicle miles traveled instead of a per-gallon gas tax raise money for the Highway Trust Fund and increase social welfare?

Study supports tax based on how far you drive instead of per-gallon of gas by Dug Begley of the Houston Chronicle.

Driving has costs: the gas, the pollution, congestion, wear and tear on the road, etc. Generally, when you drive, you just pay for the gas. With no taxes, you are not paying for damage to the road, the congestion or pollution.

We do have a gas tax, though. It is 18.4 cents per gallon. But what if your car is electric or high mileage? You won't pay much for the damage to the road. So in that sense, the price is not high enough. Then we would over use the roads and that is socially inefficient.

Same with congestion. The gas tax is the same no matter when you drive. In rush hour, it might be too low. At off times it might be too high.

It seems like the proponents of this idea want to allow for the tax on miles traveled to vary with location and time of day. So it will not be too high or too low. That means we would not overuse or under use the roads, leading to more social welfare. That is my interpretation without having read the full study (very interesting that the Houston Chronicle has the entire study contained in their own news article).

Here are excerpts from the Houston Chronicle article followed by excerpts from the study:
"A federal tax on vehicle miles traveled, as opposed to a per-gallon tax on gasoline, could raise money for the Highway Trust Fund and improve society, to the tune of a 20 percent increase in social welfare, concluded the Brookings Institution’s Clifford Winston, the University of Arizona’s Ashley Langer, and the University of Houston’s Vikram Maheshri, in a study published in the Journal of Public Economics.

“Our findings therefore support the states’ planning and implementation of experiments that charge participants a (vehicle miles traveled) tax and potentially replace their gasoline tax with it, and they support the federal government implementing a VMT tax instead of raising the federal gasoline tax,”
the authors wrote, in a statement released by Brookings, a Washington-based think tank."

"nearly every federal agency and researcher that has studied the gas tax has said it already is failing to keep up with highway funding needs and will be largely insolvent within a decade.

A VMT tax, meanwhile, would lead many drivers to change their habits and would better charge people for their use of the roads, compared to a similar hike in gasoline taxes."
Now excerpts from the study. This one gives you an idea of how the government would get the data on miles driven and where you drive.
"Advances in communications technology have made it possible to implement a VMT tax in any state in the country. Specifically, an inexpensive device can be installed in vehicles that track mileage driven in states and wirelessly upload this information to private firms to help states administer the program. Motorists are then charged lump sum for their use of the road system each pay period, which is normally a month. For example, the cost of Oregon's experimental VMT tax program is $8.4 million. For privacy reasons, data older than 30 days are deleted once drivers pay their VMT tax bills."
This is from the conclusions:
"As noted, a major potential efficiency advantage in the long run of the VMT tax over the gasoline tax is that it could be implemented to vary with traffic volumes on different roads at different times of day. And it could also be implemented to vary with pollution levels in different geographical areas at different times of the year and with the riskiness of different drivers to set differentiated prices for motorists' road use that could accurately approximate the true social marginal costs of automobile travel. At the same time, we have indicated that such charges would entail a significant gain in government revenues but a significant cost in consumer surplus. If policymakers implement a VMT tax to stabilize highway funding, we recommend that they carefully explore the potential efficiency advantages of aligning the tax with varying externalities created by different types of highway travel, while mindful that distributional effects limit the extent to which they can pursue efficiency improvements."

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